Relationships and trusts make poor bedfellows when relationships come to an end. Trustees who are bitter over the end of a relationship are often unable to acquit the obligations and duties owed as a trustee to a beneficiary who is no longer loved and cherished.
Relationships and trusts can make even poorer bedfellows when trustees are party to agreements recording the resolution of relationship property matters.
Whether trustees can or ought to be party to relationship property agrements is a vexed question. While it is common for assets that would otherwise be relationship property to be owned by trusts, it is not clear that trustees can or should be party to relationship property agreements.
Relationship property agreements require that each party is independently advised. If parties are contracting both on their own account, and in their capacity as trustees, should each be advised in both capacities? Parties to a relationship property agreement are both angling for the best personal outcome. However, trustees are acting (in theory) for all of the beneficiairies and so the relevant and material considerations are somewhat different.
In the recent decision over the demise of the relationship of one Ms Gould and one Mr Timm the High Court had no difficulty in finding that the parties were bound to the agreement in both their personal and trustee capacities. However, significantly, the parties were the sole trustees of the trust at the time. What the position would be if there were more than two trustees is less clear.
Although the trustees were bound by the terms of the relationship property agreement, the underlying trust document (here an acknowledgment of debt) was only varied so far as the relationship property agreement provided. Accordingly, although the term of the acknowledgment of debt that the loan was to be repaid in 2033 was varied to provide for repayment in 2 years, the term exempting the trustees from personal liability and giving the lenders recourse only against the trust assets remained. This meant that Mrs Gould could not seek recovery of more than the value of the trust’s assets.
The end result of the matter, which was a summary judgment claim, was a mixed bag for each party that demonstrates the dangers of mixing trustees and relationship property agreements. While one matter was determined in Mrs Gould’s favour, the outstanding matters will be determined by substantive hearings.
The case high lights the risks of agreements between parties in the personal and trustee capacities and the difficulty in appreciating where liabilities can be limited and capacities confused such that the agreement cannot achieve the agreed settlement.
While trust matters must usually be dealt with when a relationship ends; trust matters should be determined by trustees and relationship property matters by the parties to the relationship. The two should not be mixed as to do so not only confuses the potential outcome, it also overlooks the consideration the other beneficiaries have a right to.
- Gould v Timm  NZHC92
- Buckland v Commissioner of Stamp Duties  NZLR 1194 (SC)
- Central London Property Trust Ltd v High Trees House Ltd  KB 130
- Berry v Berry  2 KB 316
- Property (Relationships) Act 1976, s 21